Traditional thinking has suggested that selling first is the best policy. The reasoning is that once you sell your existing home, you'll know exactly how much cash you'll net out. And, thus, you'll be able to strike a stronger "cash" deal (cash to new financing without contingencies) for your next home.

On the other hand, this fails to address some important considerations. For example, where do you live if you sell your existing home before buying the next one? Are you going to have to rent for a while?Also, what about hot markets where prices are rapidly escalating? Waiting even six months to buy can result in having to pay significantly more for your next house.

Does this mean you should actually buy before selling? To do so will help lock in a price in a hot market. But, it could also mean that if you have trouble selling your current home "by owner," you could end up with payments on two houses!

One solution that many sellers have used is the "contingent" offer. You offer to buy your next home, contingent upon the sale of your current one. If the seller agrees, then you don't have to complete the purchase until the sale of your existing house. In fact, both purchase and sale can occur simultaneously.

Unfortunately, while this may work in a cool market, no savvy seller will accept a contingent offer in a hot market. After all, why should they? They have other buyers waiting in line without contingent offers.

All of this is further complicated by the fact that selling "by owner" has the perception of being more "iffy" than selling through an agent. Somehow with an agent, many sellers feel more confident of a sale, than if they're handling the transaction themselves.

So, what should you do? Sell first? Or buy first?

It depends on how much risk you feel comfortable with. Personally, I've always used a contingency linking one sale to the other in cool markets. However in hot markets, I've sometimes bought first before selling my existing home.

But, what about the risk of ending up with two homes and two payments?

Personally, I don't see that as a problem. If the worst happens and the market collapses, I'll always rent out one of them. On the other hand, by tying up two properties while prices escalate, I increase my profits.

Further, through the use of "bridge loans", (short term financing to help with the purchase of the second home) and judicious use of a financing contingency (which says if I can't get appropriate financing, I don't have to complete the purchase), I feel confident of being able to pull off (or being able to gracefully back out of) the purchase of a new home before completing the sale of my old one.

On the other hand, it's certainly riskier than simply selling first and if it threatens your comfort level, you shouldn't attempt it.

TIP

Check out possible financing of a purchase before sale with a good mortgage broker. He can assess your chances of getting sufficient financing to make the deal. It may turn out that you can't handle it. On the other hand, you may find it's financially feasible for you... and you may actually want to rent out your old home as an investment, instead of selling!"